Bankers tell politicians to back off

Former bank chief executives
Don Argus
and
David Murray
have rebuked politicians for trying to interfere in the pricing of loans, warning the meddling could be risky for banks and Australia’s free-market economy.

Backing the case for banks not to follow the Reserve Bank of Australia’s cash rate cut, Mr Argus, a former
NAB
chief executive, told The Australian Financial Review that politicians had no idea how to run a bank.

“Politicians that have never managed a balance sheet are trying to tell a banker how to," he said.

“To start to dictate to business what price you can put on your products, you might as well go back to a regulated environment like before 1983."

Mr Murray said banks operated on thin lending margins and needed to make returns on equity of about 15 per cent to ensure provision of finance to households and business.

Commonwealth Bank
has the highest cash return on equity of 19.5 per cent, followed by
ANZ
(16.2 per cent),
Westpac
(16 per cent) and NAB (15.2 per cent).

The average return on equity for the top 100 listed companies is 12 per cent.

As ANZ announced it would pass on the full 0.25 of a percentage point rate cut and divorce future interest rate decisions from Reserve Bank actions, Mr Murray said the official cash rate was a minor factor in banks’ funding costs.

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Financial instability in Europe had significantly increased the cost of wholesale borrowing, he said.

“Politicians are just playing normal bank bashing games," he said. “What’s important is that banks balance the proper funding of their books at margins that allow them to keep lending to the economy. If you want them to be unable to fund the economy, reduce their spreads."

Mr Murray, chairman of the Future Fund and a former CBA chief of 13 years, criticised a Treasury idea to introduce a super profits tax on banks.

“If you also want them to stop funding the economy, you put in a new tax based on return on equity and introduce the transactions tax like they’re doing in Europe," Mr Murray said.

“There’s some crazy stuff out there that is not realistic."

He said that taxpayers had not bailed out Australian banks in the Lehman Bros financial crisis through the guarantee of wholesale funding and deposits.

“That is utterly untrue," he said. “The taxpayer made a profit out of the crisis from the banks."

The government has reaped $3.1 billion in fees paid by banks for the government backing.

“Has any of that gone back into the Reserve Bank’s reserves so if there’s another crisis the Reserve Bank will find it easier to provide liquidity?" Mr Murray asked.

On the Greens’ policy to peg loan rates to movements by the RBA, Mr Argus said: “That will be a quick way to close down the economy."

He said banks had made a major contribution to Australia since financial deregulation in the 1980s.